Today’s post is long, but I think it’s worth the read. If you want to change your life, pursue a dream job, or protect your family from a layoff or massive pay cut, then take 5-10 minutes and learn how we were able to survive losing $70,000.
When I originally started to draft this post, I felt the need to explain to you just how much $70,000/yr (or $4,000/month in take-home pay) is.
I wanted to make sure you were able to comprehend that $4,000 a month could buy you (1) a 5-day cruise for 2 in the Carribean (including airfare), (2) front row tickets to your favorite concert or KU basketball game (assuming they’re not playing MU or K-State), and (3) either a nice $1500 camera, HD TV, laptop, three iPad, or any other combination of technology gadgets that may tickle your fancy.
I also gave some other examples of what exactly you could do with that kind of money each and every month, but my guess is that you realize $70,000 is A LOT OF MONEY — regardless of who you are.
Holly and I certainly didn’t wake up one morning and have this awesome idea about over-hauling our lives, flipping things upside down, and sacrificing merely for the sake of it.
We’ve done all of those things because they’re necessary; necessary to accomplish the goals we’ve set for ourselves, our family, and our lives. They’re necessary because you can’t keep doing the same things you’ve been doing and then expect something to change.
As you read through the rest of this post, I just want you to keep in mind that change takes time. The key is getting started. Once you’ve gotten started, just focus on taking one step in the proper direction each day, and eventually you’ll find that everything about you (and your life) has changed.
Prior to the time of this transitional period (okay, “transitional period” may be an understatement. Something like “flip-your-life-upside-down-shake-twice-don’t-stir-throw-it-off-a-cliff period” could be better suited there), Holly and I decided we were going to start working our way out of debt.
The only way to get out of debt with gazelle-like intensity is to live on substantially less than you make and throw all of your “extra” money towards debt every month. So, while we were making around $140,000/yr, we were living on less than $40,000 of it.
By doing that we were able to pay off substantial amounts of debt in a short period of time, while also paying cash for a car (new to us), wedding rings, honey moon, a vacation, and half of our wedding.
Before I just brush over this step, I need for you to carefully read it again…because it’s very important. Living on less than you make is extremely difficult. It’s one of those easier-said-than-done things. What typically happens in this country, regardless of income, is that we spend EVERYTHING we make (and most of us go into debt beyond that). I’ve coached people that make minimum wage, some that make $20/hr, and others that take home $10,000/month. And that statement applies to all of them. Everything is relative. Income and lifestyle adjust in the same direction.
The fact is, regardless of your income, you MUST learn to live on substantially less than you make. Doing that will allow you to take a lesser-paying job in the event that (1) you want to pursue your dream job or (2) you get fired/laid off and can only find work that comes with a reduction in pay.
This is the area where you you can take some tangible steps and it really is where you’ll be able to make some progress on key #1.
Never be ashamed of using worn items (be it from family or a place like craigslist). I made this realization a couple of months ago, but if you look through our house, there is literally not a single high-priced item that we bought new from the store. Seriously. Our beds, kitchen table, silverware and plates, washer/dryer, couches, TVs, coffee tables, and cars, were all used. They were all hand-me-downs from family members (except the washer/dryer and cars).
Now, of course I want to buy new items. But, I’d rather pay off debt first and get my family on a sound financial setting before I do that. I just have to consistantly remind myself that my day will come, it’s simply a matter of time.
No Eating Out – Ever
So, “ever” may be a little strong. But Holly and I remain on a relatively strict monthly budget and it doesn’t include a lot of eating out.
If you’re trying to get out of debt, or you’re struggling with money, then Dave Ramsey loves to say that “you shouldn’t see the inside of a restaurant unless you’re working there.” Well, when we first got started on our journey 5 years ago, I took that advice a little too literal.
Holly and I had been dating for a little over a year and Valentine’s Day rolled around. She asked me if we were going out that evening. To be fair, I didn’t really expect that to come from her because she KNEW I WAS ON A MISSION. We had agreed not to buy each other things, so the question caught me a little off guard. So, I told her “no.” She then proceeded to ask me if we could at least buy a DiGiorno frozen pizza — apparently she was tired of eating Pasta Roni every night. What she didn’t know was that I had already spent all of my grocery money for the month (and there was no eating out money at that time) and had loaded up on my Pasta Roni, Ramen Noodles, and Totinos pizza. So, I told her “no” again.
You see, when I first got started on my plan I was a serious about it. There was no such thing as eating out. There was only progress to be made, debt to pay off, and goals to accomplish. I had gotten to the point that I was sick and tired of struggling with money and tired of working a job that I dreaded, so I was going to do whatever was necessary to change things. So, to Holly’s chagrin, we ate Pasta Roni for the 3rd night in a row. Sorry, Toots. True story though.
Get on a Strict Grocery Budget
To this day Holly and I plan out our weekly menu and make a grocery list accordingly. Early on our budget for groceries was about $40/week but now we’ve bumped that to $70. We literally take our grocery list, pencil, and calculator into the store and tally everything up before we hit the register. It was a little embarrassing to start, but I quickly got over it. I’d rather be embarrassed and making progress each month, than fit in and be going into debt. We don’t use coupons often, but we do buy off-brands on a regular basis. We rarely buy name brand products and it has saved us a significant amount of money over time.
No Cable Television
Frankly, cable is a great thing to cut (unfortunately it is where I get major resistance from my male clients). It’s a complete waste of time and money. We throw away our lives, opportunities to grow, and precious time with family for the sake of plopping ourselves on a sofa cushion to rot our brains for 28 hours (on average) each week.
I really did miss cable when we first got rid of it but I’m really thankful we did. It’s amazing how much more productive you can be without it. It’s obviously up to you, but we did go ahead and subscribe to Netflix. We canceled the streaming because it still provided us the opportunity to waste too much time (my self-discipline sucks), so we just have (2) DVDs mailed each week.
Decrease Cell Phone Package
This is a category where most people can cut back on. The question is whether or not you’re willing to. Holly and I were: a little over a year ago we decided to get rid of internet on our phone — blasphemy, I know. Our cell phone package (for 3 phones) is only $115/month.
Have Proper Amounts/Types of Insurance
I’ll write more about this topic and about types of insurances down the road, but this is definitely a place where I see people get taken advantage of and spend unnecessary money. Not because insurance salesmen are bad people, but more-so because the buyer is just ignorant and lazy.
Holly and I shop around our insurance products to ensure we are getting the best price with the best companies out there — you shouldn’t do it all the time, but once every year or two is certainly a great idea. We only have liability insurance for both of our cars — which saves us quite a bit of money each year. Our cars aren’t worth much and we have enough savings in place to buy a new car if something were to happen.
We have the cheapest health care plan that my wife’s work offers (which is good for us since we’re relatively healthy — well…it was supposed to be good for us before we had a collasped lung and a broken hand this past year); we have term life insurance, which is the cheapest form of life insurance there is. Lastly, by reviewing our home owners insurance documents on an annual basis (when they get automatically renewed), I was able to spot that our insurance company hiked rates up last year because they ‘assumed the value of our home and personal belongings went up.’ So, I challenged them on their increase, and got them to knock our coverage back down to where it should have been. No reason to pay for insurance on $90,000 of personal property when we only have about $10k worth of “stuff.” That’s literally a waste of money.
Always know what type of insurance you have and the coverage it provides. You may very well be massively over-insured or are paying high rates simply because you’ve been with a company for a long time and they don’t believe you’re going anywhere (I see it the most with people in their 50s and 60s).
A few years prior to the major pay decrease, I kind of lived like a rock star. Front row concert tickets, eating out/going out every night, etc. Well, needless to say if you want to make financial progress, you probably can’t do those things (unless you make a ton of money).
Holly and I rarely go on vacation — maybe once every couple of years. And even when we go on vacation we try be “smart” about it by looking for deals. We also rarely do things that cost money; we certainly love spending time with each other and going out, but we don’t go to movies, sporting events, concerts, or anything else that involves Hamilton, Jackson, Grant, or Benjamin Franklin.
For some of you that may sound miserable, but I’ve found that having fun and enjoying things doesn’t require money to be spent.
*Clearly Define Needs & Wants*
This is probably the biggest lesson I’ve learned and the key to our ability to make the $70,000 change in our life.
Americans’ views of needs and wants differ greatly by social status and income, however the definition needs little interpretation or argument.
I’ve had other people be so kind and tell me that I need a new car, washer and dryer, TV, and other various appliances. Heck, I tell myself that sometimes. But I don’t. Society lets me know that we need cable, internet on our phones, a smart phone (which I don’t have), and an iPad, Xbox, PlayStation, BlueRay, and/or Wii. But we don’t.
We have everything we NEED. All of our “stuff” works. Maybe not perfectly, but 95% of the time they fulfill their purpose.
Learn to clearly define your needs and wants and you’ll take some great steps towards financial freedom.
I didn’t sit down 5 years ago, have a goal that involved taking a $70,000 pay cut, and create a way to make that happen. While that would have been pretty awesome, it’s just not how things work. So, without really knowing it, one of the things we did which allowed us to handle the massive pay cut was to eliminate (and limit) some of our monthly debt payments.
So, obviously one of the things you can do to prepare yourself for a layoff, downsize, dream job opportunity, or pay cut, is to get rid of debt!
No Car Payments
Dave Ramsey firmly believes that the middle class will greatly struggle to build wealth if they have car payments. From everything I’ve seen (personally and coaching), I’d have to agree with him.
Fortunately for Holly and I, we’ve never had car payments. I’m not really sure how we’d manage if we had them. I’m not proud of it, but I’ve driven some “beaters” in my day: (1) a ’93 2-door Cavalier, (2) the wonderful 1988 2-door, baby blue, Mercury Cougar was probably the best one, and (3) my current car that I bought 3 years ago — a multi-color 1997 Honda Accord that has serious water-damaged paint from sitting after an accident for a couple of years. That one I named Dave, in honor of Dave Ramsey. Thanks Dave.
Paid off Student Loans & Credit Cards
Holly and I started with $110,000 in total debt (not including mortgage). Wow…I know. And you thought your situation was bad. But before taking the pay cut we paid off nearly $50,000 of that total!
Doing that drastically lowered our monthly debt payments and it allowed us to handle the eventual decrease in pay. So, one of the best things you can do for your family is to get your financial life in order! Pay off as much debt (medical, personal loans, credit cards, student loans, car payments, etc) as you can and get those payments out of your life forever!
Reasonable Rent or Mortgage
Along with a decline in interest rates, there has probably been no greater deterrant to Americans’ ability to save money than the massive rise in housing and rental prices. The Amercan Dream requires that every person own a home — a big home too. I’m not just talking about a roof over your head; I’m talking about 3 bedroom, 2 bath, a kitchen with stainless steel appliances and granite counter tops, 3 car garages, and a finished basement complete with a movie room or “man cave.”
Fortunately for Holly and I, we didn’t buy more than we could afford. We limited our monthly house payment and it allowed us to not have our hands tied when I wanted to make a change in my career.
Most don’t realize this but a larger house also means higher property taxes, home owners insurance, utility bills, and house repairs. A 3,000 square foot house doesn’t just have a larger monthly payment than a 1,500 square foot house; it comes with about $700 in added monthly expenses.
Most people look at us and think we’re crazy for all that we’ve given up. Let’s be honest here, I even wonder if I’m crazy sometimes.
There are two sides of me: the person that loves stuff and comfort, and then there is the person that wants to stand for something, have a purpose in life, believe that God would want us to work jobs we love, and be happy and have everything we need in the process.
The change in pay hasn’t changed my want for stuff. I still want to go on a vacation to Fiji and stay in a 5-star resort, I want a new flat screen TV, and a vacation house in Colardo. I still want a new bed, couches, cars, an Iphone, Ipad 2, and a bar-b-que grill.
But what I have learned is that I can live without all of those things and still be happy. I have all that I really need.
Although my want for things will always be there, my view of life and stuff no longer defines who and what I am.
What I can do with my career is no longer dictated by my lifestyle and financial obligations. I can go work full-time at McDonald’s and make ends meet if I need to.
Dave Ramsey believes that having Financial Peace involves having wealth. My definition is different: having all the things that we need, never worrying about paying any of the monthly bills, while working a job I love in the process.
Maybe “Financial Peace” isn’t the right phrase. Maybe something like “FREEDOM” would better describe how I feel.
Redefine the American Dream.
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